Ninth Circuit Decision in Fox v. Dish is Another Blow to TV Networks

“The phone, the laptop and the tablet have advanced so dramatically. Television has been drastically left behind.” – Tom Rogers, CEO of TiVo, Inc., Wall Street Journal, July 30, 2013

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First music, then books, now television. Music and book publishers have suffered well-publicized headwinds (some would say hurricane gales) at the hands of the Internet economy, and now 2013 is the year the TV and cable industries are beginning to face comparable technology-driven disruptive technologies.

Technical advances now allow people who live in New York, Boston or Atlanta to use Aereo to watch inexpensive over-the-air television on Internet-enabled devices (potentially freeing them from more expensive cable fees), and subscribers to Dish satellite TV to watch primetime network TV ad free

The broadcasters are fighting these developments in the marketplace and the courts, and the court actions have sent sparks flying in the world of copyright law.

*An important caveat in both cases is that the appellate courts were reviewing preliminary injunction decisions by district courts under a deferential standard of review. There is no certainty that the Second and Ninth Circuits will reach the same conclusion on an appeal of a final judgment in these cases.

Here are the facts in Dish.

Dish records the primetime programming of the four major network TV broadcasters – ABC, CBS, NBC and Fox. It manually inserts electronic bookmarks to mark the beginnings and ends of commercial breaks. Dish then downloads the programming to the hard drives in the set-top DVR boxes of subscribers who have pressed the button that “enables” this service.

These subscribers now have a box-top recording of the previous eight days of primetime programming, including ads. However, when they watch a show and the system encounters an electronic bookmark marking an ad the service skips to the next bookmark, “hopping” over the ads. Voilà! Dish subscribers have advertisement-free TV, “the feature viewers have been waiting for since the beginning of television.” Dish has given this ad-skipping service the name “AutoHop.”*

*The district court record suggests that an important motivation for Dish to create AutoHop may have been to compete with Internet-based programming from services such as Hulu and Hulu Plus.

Hopper Logo

If Aereo’s service – which feeds over-the-air TV programming to computers, tablets and smart-phones (ads and all) infuriated the network broadcasters, the Dish ad-skipping service – “which could destabilize the entire television eco-system” according to Moody’s – has left broadcast TV executives apoplectic. Fox filed suit for copyright infringement in California, but the district court denied Fox’s motion for a preliminary injunction. In a nightmare scenario following the networks’ thus-far unsuccessful battle with Aereo in the Second Circuit, the Ninth Circuit upheld the district court, relying in significant part on the Second Circuit’s controversial Cablevision decision, the case that was central to the broadcasters’ loss in Aereo.

Based on Cablevision, the Ninth Circuit held that because Dish’s AutoHop system creates copies only in response to the customer command enabling the service, the district court did not err in concluding that Dish is not engaged in direct infringement. Even though Dish provides the service, the customer, not Dish, is “the most significant and important cause of the copy.”

In Cablevision the Second Circuit asked “whether one’s contribution to the creation of an infringing copy may be so great that it warrants holding that party directly liable for the infringement, even though another party has actually made the copy.” However, the Second Circuit never identified that point in Cablevision, and although Fox argued that Dish, as an active participant in the activity of copying, had crossed that line, neither did the Ninth Circuit in Fox v. Dish.

If Dish is not the “direct” infringer (since the subscribers, not Dish engage in the “volitional conduct” that “makes” the copies), isn’t Dish liable under the theory of secondary liability?* After all, Dish puts the DVR devices in the hands of their subscribers, ready to use (with no options or vatiations), and shows them how to push the button that feeds the copies to them.

* One form of secondary liability under copyright law is to intentionally induce or encourage direct infringement. This theory of liability was not asserted in either Cablevision or Aereo. In Cablevision, the cable company “expressly disavowed” secondary liability as a theory of liability.

In response to this argument Dish fell back on the Supreme Court’s famous 1984 decision in Sony v. Universal (better known as the “Betamax case)”, and argued that copying by subscribers was fair use under that case.* However, the most important factor in fair use analysis is the harm to the market value of the copyrighted work, and in this case (unlike Sony) AutoHop clearly has an impact on the value of Fox’s TV shows, since they are supported by advertising revenues which are likely to shrink if people are skipping Fox’s paid advertising.

* Although there was evidence in Sony that 25% of Betamax users fast-forwarded though commercials, the Supreme Court in Sony never squarely decided whether commercial-skipping was fair use (as compared with time-shifting, which the Supreme Court held was fair use).

The Ninth Circuit attempted to side-step this argument by Fox by noting that Fox does not own the copyright to the ads, only the programming. Therefore, the Ninth Circuit concluded, “any analysis of the market harm should exclude consideration of AutoHop because ad-skipping does not implicate Fox’s copyright interests.” However, this conclusion seems to ignore the fact that Dish subscribers are copying Fox’s programming as well as its advertising, and therefore Fox’s copyright interests are implicated. Perhaps a copyright suit by an advertiser would have a better chance of establishing copyright infringement before the Ninth Circuit, and I suspect that Fox (or one of the other broadcasters) is considering the pros and cons of this strategy.

On August 7th Fox filed an impassioned Petition for Rehearing and Rehearing En Banc, pointing out a number of flaws in the Ninth Circuit panel’s reasoning and legal analysis. The Ninth Circuit is more amenable to en banc review than the Second Circuit (where en banc review is rare, and where it was denied in Aereo), and therefore Fox’s quest for a preliminary injunction is not necessarily over in the Ninth Circuit. And, if the panel decision is held to be the law in the Ninth Circuit after final judgment, the issues are so important that the case should be a good candidate for Supreme Court review.

It’s also worth keeping in mind the fact that Dish, like Aereo, is playing with fire. If Dish is found to have infringed Fox’s copyrights after final judgment in district court or on appeal, the damages could be significant, given the large number of copyrighted shows at issue and the potential for statutory damages of as much as $150,000 per infringement.*

*The district court and the Ninth Circuit suggested that Dish may be liable for copies it made for “quality control,” but that seems to be little more than a monetary footnote in the context of this case. And, it appears that Dish has stopped this practice. In addition, Fox has asserted a breach of contract claim against Dish. Based on the Ninth Circuit decision, this may turn out to be a better claim for Dish than its claim of copyright infringement.